Hyundai Steel Plans New Automotive Products, Expands Research

Cho Won Suk, senior executive vice president of Hyundai Steel Co., poses for a photograph after an interview at the company's research and development center in Dangjin, South Korea. Photographer: SeongJoon Cho/Bloomberg

May 26 (Bloomberg) -- Hyundai Steel Co., South Korea’s
second-biggest steelmaker, will develop new automotive products
for use in cars including the Sonata and Elantra by adding about
200 researchers, increasing competition for Posco.

The steelmaker wants to make lighter, stronger and easy-to-shape sheets for Hyundai Motor Co. and Kia Motors Corp., Senior
Executive Vice President Cho Won Suk, 57, said in an interview.
The carmakers are South Korea’s largest.

Hyundai Steel, spending 6.2 trillion won ($5 billion) on
two plants, is competing with bigger rival Posco in South
Korea’s automotive market as sales soar for the nation’s largest
carmakers. The “challenge” is to compete on quality after the
expansion, said Nomura International Ltd.

“Auto steel requires the best technology among steel
products and not everyone can enter the market,” Lee Jin Woo,
who helps manage $8.8 billion at KTB Asset Management Co., said
in Seoul. “It will take time, but Hyundai Steel will be able to
go up to that level. Posco cannot help but to be hit one way or
another.”

Hyundai Steel has dropped 2 percent this year in Seoul
trading, outperforming the 26 percent decline of Pohang-based
Posco, the nation’s largest producer of the metal.

The steelmaker will spend 80 billion won on product
development over the next 12 months, and expand its research
department by up to 67 percent in two to three years, Cho said.
Cho, who holds a doctorate in metal engineering from the
University of Michigan, Ann Arbor, didn’t forecast how much
sales to its sister company may increase by.

Automotive Steel

Hyundai Steel sold 700,000 metric tons of automotive steel,
or 7 percent of total sales, last year and may increase that for
2010, Chief Executive Officer Park Seung Ha said in January.

Hyundai Motor sources 40 percent of its steel from Posco,
10 percent from overseas mills including Nippon Steel Corp.,
according to Nomura. The rest were from affiliate Hyundai Hysco.

“Our edge is that we can get involved in an early stage of
car development, which will enable us to tailor make products”
for Hyundai Motor, Cho said at Hyundai Steel’s research and
development center in Dangjin, where technicians were tearing
apart vehicles to study the steel used.

Hyundai Steel plans to start supplying steel for the
exterior part of cars, which is the “the most difficult area”
technology wise, next year, he said. Cho was previously head of
two research centers in the U.S. for Hyundai Motor and Kia.

Hyundai Motor boosted sales 26 percent in the first quarter,
helped by its revamped Sonata sedans and Tucson sport-utility
vehicles. The carmaker, which also makes the Elantra compact
sedan, and affiliate Kia are seeking to sell 5.4 million
vehicles this year, a 17 percent gain from a year ago.

Captive Market

Hyundai Steel “has a captive market that will digest its
output to some degree, which is a big merit,” said Kim Gyung
Jung, an analyst with Eugene Investment & Securities Co.

The mill began commercial operation of its first blast
furnace in April, and production at the second one may start
next year, boosting capacity 70 percent to 19.5 million tons.
The plants may help boost operating profit 69 percent to 1.27
trillion won in 2011, KB Investment & Securities Co. said May 6.

Hyundai Steel, which is considering a third blast furnace,
made steel in electric-arc plants that use scrap as raw
materials before the new mill started. Blast furnaces burn iron
ore and coal.